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Who Cares About the Price of Gas?

January 15, 2007 7:19 pmJanuary 15, 2007 7:19 pm

The Detroit Auto Show, which is going on right now, is full of cars purporting to solve the problem of the moment: the political, economic and environmental damage done by America’s dependence on oil. GM is showing off an electric Chevy; Ford has an adorable diesel hybrid that gets 65 miles per gallon, and Toyota is parading not only its hybrid Prius but also a huge truck that next year will be available in a model that runs on ethanol.

Chevrolet’s Volt plug-in electric car.

An overwhelming number of Americans believe that our oil problems can be solved by better auto technology: 78 percent of us want Congress and the president to push for 40 m.p.g. fuel economy standards, according to a recent poll.

What we would rather not do is use less gas. Over the past five years, as gas prices have doubled, fuel consumption has continued climbing upward. In 2006, we spent $364 billion on gasoline, which was double what we spent in 2002, according to Tom Kloza, an analyst who monitors American gasoline-buying behavior for the Oil Price Information Service. (The difference amounts to as much as the entire federal budget for Medicaid in 2006. It’s hard to imagine that we would have swallowed a one-year tax increase of that proportion.)
But the costs don’t accrue only to Americans — the whole world has to live with the high prices we tolerate. We are a country with 140 million pedals to the metal. American drivers buy one of every nine barrels of crude oil pumped from the ground, so we have more power and influence over world prices than any other buyers. Our behavior exacerbates small supply shortages, sending prices even higher. The International Energy Agency now considers drivers’ “insensitivity” to price as a potential threat to the stability of the world oil market.

This numbness to gasoline prices is relatively new. A recent study of consumer behavior by economists at the University of California at Davis found that between 2001 and 2006, as gas prices doubled, we reduced our consumption by only four percent. This is a big change from the last gas crisis, when drivers faced with the same relative price increase between 1975 and 1980, cut back by about 30 percent.

Why? In 1977 the average family traveled 12,036 miles a year, but by 2001, we were driving 21,171 miles to and from work, soccer practice and the mall. People bought bigger cars to make the longer drives more bearable, and now they’re stuck with both the cars and the commutes. Then too, fuel accounts for a smaller share of the cost of driving today’s cars. (In 2004, gas and oil accounted for 9.5 percent of the cost of driving a mile, down from 19.9 percent in 1985.)

Many Americans subtract the cost of gasoline from other parts of their budgets — by skipping movies, for example, or buying breakfast cereal on sale. Obviously, that’s a good strategy for drivers who don’t want to reduce their gas consumption, but it’s hell on the oil markets.

Why are we like this? American energy policy since the 1930s has been based on ensuring greater supply — first from the Middle East, and later from countries outside of OPEC — rather than on controlling demand. Generations of Americans have come to expect a constant flow of cheap gasoline as a right — and they attribute high prices to oil company shenanigans. Eric Smith, a political scientist at the University of California at Santa Barbara, found that that 85 percent of Californians believe that high gas prices are the result of oil company manipulation, not market pressures. And if there’s no shortage, why conserve?

Kloza, of the Oil Price Information Service, observed that when prices recently hit $3.20, some people did start car pooling, but not for classic economic reasons. They just wanted to get back at the oil companies. They weren’t “making an internal calculation about fuel’s percentage of their disposable income,” he told me in an email. “People drove less to express their wrath, or spite. It’s a combination of the numbers themselves, and the perception (am I getting hosed?) that lead to demand changes.”

To really address our overconsumption of oil, we need to fix the drivers along with the cars. And that will require big new approaches. For years, environmentalists have begged for higher gas taxes as a way to discourage people from wasting gas. But we have demonstrated that we can’t or won’t respond rationally to high prices, so taxes will not push conservation. We need to rethink our supply-based energy policy, and ready to start making changes both big and small in the way we consume oil.

I called Neal Elliot, of the American Council for an Energy Efficient Economy to ask how Americans can change. Elliot said he’s watching the “Don Index,” named after his brother-in-law. Like other well-off Americans, Don is basically impervious to gas prices. “Don is price insensitive” said Elliot, before detailing Don’s S.U.V. history: He replaced his Ford Explorer with a Chevy Tahoe, then got a larger Tahoe, and then a Cadillac Escalade. Recently, that too was replaced, by an even bigger Escalade. But suddenly, Don is feeling guilty. “He’s beginning to realize that unsustainable energy consumption isn’t affecting him yet, but it is making his company less viable,” said Elliot, who believes that the “Don Index” is starting to take hold. Maybe the 2008 Auto Show will include this new model of driver too.

The point of gas taxes is not simply to punish (“disincent” in the language of economists) people for driving–it’s also to provide the wherewithal to provide alternatives.

If the Federal government (preferably) or a state wanted to be smart, they would set the price of gas at $4.00/gallon through a floating conservation surcharge that would increase at 25 cents per gallon per year. This would stabilize the price of gas, which is the only way that alternatives can thrive.

Moreover, it would provide a solid downpayment on the cost of rebuilding our decrepit rail systems, fixing our bizarre carburban sprawl building patterns, and recreating cities and suburbs into places where the average person need not own or use a car.

One of the reasons that we are so price inelastic on gas is that we have spent 60 years funding and building an infrastructure that is almost calculated to require constant driving. Let’s use some of the money we formerly gave to oil companies and oil shieks to rebuild alternatives to cars here.

In Israel where today for $60 bought about 10 gallons to fill the tank of my daughter’s Mazda. Think twice at those prices about taking long trips. Didn’t occur to me until buying gas today why she felt it such a big deal the other day to go from Safed to Tiberias to shop and go out to eat.

There is a lot more to price insensitivity than habits. We build houses in suburbia where most services cannot be accessed without cars. Commute patterns include 2 hour drives for many Americans, which is more related to how we build housing than anything else.

Furthermore, we don’t pay for the impacts of suburban housing at the purchase of a house or in the financing of an automobile. In fact, urban dwellers are often stuck with the tab of suburban infrastructure and with the traffic it creates. If we really wanted to solve our energy problems, we would make cars cost what the actually cost, gas cost what it actually costs (about $7 a gallon if you include the cost of military interventions to protect oil infrastructure and the cost of environmental clean up), and we would shift traffic from urban areas to suburban areas by using ramp metering in the outside of cities rather than in their core.

I agree with Mr. Overmeyer that there is a systemic issue here that most people live in suburbs and drive to go to work. Most people drive 5-10 minutes to go shopping at the local Home Depot or Walmart. In China, because of population density every shop or restaurant can be located within 2 blocks. There are Bike lanes on the sides of roads that are wider than cars. Often with traffic it is faster to bike places than drive there. Though I agree people’s attitudes are are very important as well. Growing up I was greatly affected by Smokey the Bear advertisements only YOU can stop forest fires. Perhaps we could have a similar campaign. Only you can stop global warming.
Either that or everyone get electric cars that plug in to parking lots whereever you go.

Not to belabor the point, but I think the ideas in Mr. Overmeyer and Mr. Laing’s posts cannot be overemphasized. Much of oil demand is inelastic precisely because of the habitats we have built for ourselves. Nearly all our new houses are built with automobile-only infrastructure: no sidewalks, no bike lanes, busy arterial streets. The prospect of walking or biking to anything beyond your neighbor’s house is almost laughable. Sure we can all drive hybrids, which will reduce some consumption, but to deal with our problems in a major way we are going to need bigger solutions. Creating neighborhood that allow people to walk, bike, or take transit to work, school, shopping, and friends is not only good for our oil addiction, it’s good for us. It even makes us happier. Some of the major problems facing our country (oil, climate change, obestiy, diabetes, isolation, and depression) have to do with the way we live. Our drive-in utopia has devolved into multi-hour commutes on crowded interstates, overweight children who must be chauffered from place to place, and stressed-out parents with no time to exercise. A change in our zoning laws may be our best oil saver (and public health intervention).

electric, ethanol, hydrogen, next-gen hybrids…I think we’ll see 10-25% drop in overall fuel usage in the next 15 years…might be sooner, if more independent designers get in on the act, get college kids doing it, get people from communities submitting ideas, make lots of phone calls around the world until 40MPG becomes an expected standard at your local car dealership.

You can cut your fuel usage easy without really sacrificing much in the way of mobility. Use the cruise, top up your tires, never exceed 75MPH(the efficiency kings say 55, depends on how slick your ride is, I guess),trip-planning, air/fuel/oil filters, cut off the a/c anytime you don’t really need it, drive a 4 cylinder instead of a 6 or an 8. Anyway, point is, where there’s a will, there’s a way, and there’s lots of websites out there to find good info. Google, and ye shall find…

I disagree with JMG. Why tax people to provide conservation “programs” managed by bloated bureaucracies if the market won’t work? Too late. And there’s never any guarantee that the money would be spent on rational alternatives. My dream is to have a functional, affordable rail system in this country. If the government could possibly get halfway there with the tax resources they already have, I might support a gas tax to get us to the finish.
Yes, suburbia is the enemy. People are so willing to “take action” against the evil oil companies, while greedy developers building energy hog houses and continuing unsustainable living patterns get a free pass. That’s where the enemy lies.

Can America build and utilize a strong mass-transit system? I often drive 3-5 hours to destinations within New England that, if there were a regional light-rail system, I could easily get there without a car. And so could many of the other hundreds of people attending similar conferences, where we can’t carpool because we don’t know who is coming, may not trust the driver, or just plain cannot come and go at the exact same time.

I considered how if I were in Europe, even traveling through rural Germany and Switzerland, I would have taken the train. Why? Gas prices. Lack of car ownership. Lack of the need to OWN a car because of a strong transportation infrastructure.

How can we adapt this lower-car-and-fuel-use lifestyle to be locally appropriate for various regions of the USA? It will obviously be dependent on many things local, such as existing roads and train tracks. How about those of us that are hauling lots of “important stuff” in our vehicles? Good luggage compartments for people’s goods?
What existing models are there? How about the localized model of transporting employees on a bus used by Google in California? Can this decentralized method work on a company-by-company basis?

People don’t try new things until they’re popular, so we must convince them that this is already what everyone else is doing. Now the only thing we need to figure out is what “this” is.

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Also, a few comments/examples to supplement the thoughts of earlier responders:
1. Bike Friendliness–checkout Davis, CA, land of the bicycle. It is a wonderful place to be a rider, and the cars know how to deal with bicycles as well.
2. Walking/Obesity–a recent article in the Valley News (NH/VT local paper) detailed a “Wednesday Walkers” program appropriate for small-medium towns. On Wednesdays, the school bus route that travels within a mile or half-mile of school exists only by name. Parents rotate through the responsibility of holding flags and chaperoning the kids, acting as the front and back of the school bus. The whole group walks together, the bus doesn’t drive that day, the kids get exercise, and the parents don’t have to commit to walking their child every day, or even every week, which they may not have the time to spare.